Zeroing In: A guide for the finance sector on the International Energy Agency’s Net Zero Emissions scenario and its implications for oil and gas finance

In 2021, the International Energy Agency (IEA) published its first guide on how the world’s energy system would look if global warming is limited to 1.5 degrees Celsius (°C). The IEA’s Net Zero Emissions by 2050 (NZE) scenario made headlines with the finding that oil and gas in already-producing or under-development fields will be sufficient to meet demand: there is no need for any new oil or gas fields to be developed after 2021 in a to 1.5°C world.

The conclusion that there is no need to develop new oil and gas fields follows from the arithmetic of 1.5°C, not from the IEA’s modelling choices. Oil and gas fields commonly produce for 15 or 20 years, and in some cases more. Over their life, fields’ rates of production decline as extraction reduces reservoir pressures, even with ongoing investment in those fields. For conventional fields, this decline is on average about 4% per year. Historically the oil and gas industry has continually developed new fields in order to sustain and grow total production. However, limiting warming to 1.5°C requires oil and gas consumption to fall by around 3-5% per year. This is the reason the IEA concludes that no new fields are needed: in a 1.5°C world, oil and gas consumption will decline at roughly the same rate as production from existing fields. This rate of decline is seen in other 1.5°C scenarios, including those published by the Intergovernmental Panel on Climate Change (IPCC).

While the IEA makes the conclusion about…